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Bush's Shuffle: What's in the Cards

By Michael Wallace A house divided against itself cannot stand, as the saying goes. And it may well be that what press reports had been describing as an embattled relationship between Treasury Secretary Paul O'Neill and White House economic adviser Lawrence Lindsey -- and a resulting lack of cohesion on fiscal policy -- ultimately led to the Dec. 6 resignations of both men. The result is a shakeup of the Bush Administration's weak economic policy team, and there may be more departures on the way.

O'Neill was asked to leave by the White House, according to Bush Administration sources cited in wire-service reports. For his part, Lindsey seemed to be at loggerheads with O'Neill on further fiscal stimulus and tax policy, so it appears that an inability to agree on an effective policy approach led the Administration to show both men the door.

JOBLESS WORRIES. The idea that O'Neill was let go lends credence to speculation that the hard-nosed former corporate chieftain may have been considered an impediment to the Bush team's next legislative push to stimulate the economy. As the midterm elections approached, the whisper in Washington was that O'Neill, who had run aluminum giant Alcoa before his Washington stint, would go once the vote was out of way.

Mixed reports on the economy in recent weeks have perhaps heightened the Administration's concern that it needs to do more to stimulate a persistently sluggish economy. The latest evidence: the nation's jobless rate jumped to 6% in November, according to the Labor Dept.

Yet the White House also needs to make sure that it addresses any lingering concerns about the strength of its economic team -- for investors and finance ministers around the world.

As the markets wait for the President to name successors to these key posts (the betting is that Commerce Secretary Don Evans will be tapped to fill O'Neill's post), markets were mostly quiet. The dollar

recovered somewhat, along with stocks, with the market apparently having decided to view the shakeup as a potential positive, perhaps opening the floodgates to fiscal stimulus.

LONG BOND'S RETURN? One other item of note for the bond market: There is some talk that the 30-year bond, the longtime market benchmark that had been slated to be phased out, could be revived with new Treasury officials in place. Treasury ceased issuance under O'Neill's helm.

Of course, O'Neill wasn't the only one at Treasury who no longer saw the value of the long bond. More than one undersecretary favored the move, and it's too early to tell how they will fare in the economic team's shakeup. Meanwhile, further evidence of fiscal deterioration before the economy revives might be needed in any event for this Administration to favor a return of the 30-year bond. And team Bush is obviously hoping that if it jump-starts the economy, tax receipts will roll in as before. Wallace is a senior market strategist for MMS International

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